Will DC predict a Denver bust

If you haven’t been to the mountains recently, the leaves are starting to change along most of the passes and will peak in the next couple weeks on the higher passes (7news put out a guide for aspen viewing). Is there also a change brewing in Real estate prices throughout Colorado?

Bloomberg did an interesting article which showed almost half of single-family houses in the New York and Washington metropolitan areas are losing value, a sign that buyers’ tolerance for high prices in many large U.S. cities may be reaching a limit.

Is this an early warning sign that the market may be in danger? What percent of homes in Denver are declining? Are there other indicators to watch?

Interestingly enough, Denver in particular was mentioned in the article with almost 5 percent of the houses in the metro declining in value. What does this mean?  Basically 5% of the houses that are closing declined in value verse what prior sales say they should have sold for. In essence 5% of sellers are getting less than they should (according to comparables) for their house?

Who cares with only a 5% change? On the surface 5% is definitely not monumental but it is surprising that in 2014 this number was closer to one percent. It is also a bit alarming the huge jumps in many other markets that like Denver have also been appreciating faster than the market (look at DC and NY where almost 50% of the houses have declined in value). This could be an indicator for things to come for in the residential market.

On the same topic there is more inventory coming on the market in Denver and July price appreciation is finally subsiding a bit (Denver Post Article). So where do we go from here? I think there are areas within the front range where valuations are getting a bit lofty. I expect the rate of appreciation to continue to slow to more “normal” rates.

Furthermore many economists are starting to sound the warning bells. “In the eyes of households in 17 of the 20 metropolitan areas, the outlook for the real estate market has dimmed since the start of 2015,” said Terry Loebs, founder of Pulsenomics. “Given the out-sized impact of homeownership on personal balance sheets and its interplay with the aspirations and behaviors of U.S. consumers, if this downshift in housing expectations persists, it could portend a longer period of price deceleration and more sluggish consumer spending than some people are currently expecting.” (see article in San Francisco business journal)

Also Zillow said Thursday that confidence in the housing market is eroding in some of the nation’s hottest real estate markets including Denver, this survey was taken in July before the recent stock volatility.

In summary, I think we are somewhere near a peak in the Denver metro area, I don’t see a drop like 07/08 but the appreciation will surely level off and or maybe decline a small percentage. Stay tuned to see how this plays out in markets throughout Colorado as Denver is usually an indicator for other areas throughout the state.

Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Fairview is a hard money lender specializing in private money loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.